In June, the US Supreme Court landed a body blow to racial discrimination in college admissions. By a 6-3 decision, the Supreme Court ruled that it violates the US Constitution to use racial discrimination in admissions, no matter how noble-sounding the vicious and racist goal may be. (BREAKING: Supreme Court Rejects Race-Based College Admissions).
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Even though that decision was aimed at the unconscionable practice of awarding admissions to elite universities based on melanin…unless you were Asian…it was pretty obvious at the time that the blow to race-based admissions, which at least had a colorable pretense at making the country better, was going to ripple through academia, the private sector, and the government.
One of the first victims is the Small Business Administration’s 8(a) Business Development program. Full disclosure: I was employed by an 8(a) business at one point in my career.
The idea behind the SBA 8(a) program was that minority business owners were economically and socially disadvantaged because of their race or ethnicity. Other people could apply for the program, but you had to submit exhaustive documentation to prove that you were so economically and socially disadvantaged that you couldn’t succeed without a federal handout.
To qualify for the 8(a) program, a small business must meet several requirements — including being 51 percent owned by U.S. citizens who are socially and economically disadvantaged. Economic disadvantage is defined as having a personal net worth of $850,000 or less, an adjusted gross income of $400,000 or less and assets totaling $6.5 million or less. Social disadvantage is defined as racial prejudice — or cultural bias — within American society stemming from circumstances beyond an individual’s control, and people of certain races and ethnicities were automatically assumed to be socially disadvantaged without further proof.
Those who did not benefit from the presumption of social disadvantage were required to write a narrative citing specific instances in which an objective distinguishing feature negatively impacted a business owner’s advancement in the business world, and that disadvantage must be “chronic and substantial,” according to Pottroff. Often, business owners who applied to 8(a) through the narrative did so on the basis of their gender, sexual orientation or a disability, she said, and they were often extensive and detailed documents. Though they had a high success rate, Pottroff said, crafting narratives requires the help of lawyers and imposes a substantial financial burden.
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If the road to Hell is paved with good intentions, then the 8(a) program was a superhighway.
As there were always more applicants than slots and the process by which a company was admitted was somewhat less than transparent, this lent itself to suspicions and accusations of favoritism and pay-to-play. There were cases of people misrepresenting their race and background to get into the program.
Once in the program, there were other problems. Large companies who were bidding on government contracts — and 8(a) companies were nearly exclusive federal contractors — would recruit 8(a) companies for the purposes of their proposal, then drop them like a bad habit when the contract was awarded and keep 100 percent of the work for themselves.
The idea behind the program is to teach companies how to compete and then set them free. The sad fact is that the 8(a) program teaches small businesses to compete for government contracts that are earmarked for the 8(a) program. Companies age out of the 8(a) program after nine years. When they leave the program, they leave their customer base behind. Unless they have an aggressive strategy for pursuing contracts outside the government (something they all talk about but virtually none possess), they fold within two or three years of graduation. The company I worked for went from about $12 million in gross income to out of business less than five years after exiting the 8(a) program.
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In July, a Trump-appointed Federal judge, Clifton L. Corker of the Eastern District of Tennessee, ruled that the program violated the Constitution. This has left the SBA scrambling to find a way to justify economic and social disadvantage without using race as a marker.
“The SBA is proud of our work to promote equity and level the playing field in federal procurement to attract a diverse supplier base and ensure competition, innovation, and performance,” SBA Administrator Isabella Casillas Guzman said in a statement, adding that the agency is working with the Justice Department to determine its next steps.
In the meantime, additional SBA staff are being trained to review the narratives, according to the agency, which is working with the Justice Department to create additional guidance for businesses and the agencies they work with. The Justice Department declined to comment on whether it will appeal the judge’s ruling.
Even if it can be done, I can’t imagine the staff at the SBA having any interest in admitting a White West Virginia coal miner’s son into their program, and so it will die.
The decision probably couldn’t have happened at a better or worse time (depending upon your point of view).
The SBA changes come amid a broad legal assault on diversity, equity and inclusion (DEI) initiatives in the private sector, one that has only intensified in the wake of the Harvard and UNC decisions. Edward Blum, the conservative activist behind the two college admissions cases, has several pending lawsuits targeting private-sector DEI programs. And in July, more than a dozen Republican attorneys general fired off letters warning the nation’s largest companies that explicit racial quotas and preferences in hiring and promotions would invite legal action.
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The granting of a presumption of social and economic disadvantage based upon race or ethnicity. In another role, I had a need for a contractor, but my program received funds late in the fiscal year. There was no time to work through the laborious contracting process, and so my choices were hiring an 8(a) company or seeing my appropriation lapse. I hired a company headed by a retired Hispanic Navy officer. He was a Naval Academy grad, he held a Ph.D., and he was a former member of the Reagan Administration. The company was populated with retired Navy officers. They were superb. But was the owner really socially and economically disadvantaged? I have my doubts.
Hopefully, we are seeing the end of race-based programs everywhere, and the SBA 8(a) program is as good a place as any to start.